Emerging Markets in Eastern and Southern Europe

There was a time when the emerging markets of Eastern and Southern Europe were about as developed as emerging markets came, and then history happened. In the 20th century, these nations were damaged by two world wars and the control of the Soviet Union. Now free to pursue their economic destinies, the people of Eastern and Southern Europe have been catching up, big time, by rebuilding their economies and making friends (and trading partners) with their wealthier neighbors in the rest of Europe.

Europe’s economic problems and the fluctuation of the Euro are a concern in these markets. That doesn’t necessarily mean that these are bad investments, just that things are changing.

Czech Republic

The Czech Republic was part of the Austro-Hungarian Empire until after World War I, when it merged with Slovakia to form Czechoslovakia, which became independent from the Soviet Union in 1989. In 1993, the Czech Republic split from Slovakia to become an independent nation once again. The country built a heavy industrial base during its years under Soviet control; it is now working to modernize its industrial base in order to sell products to the wide world, or at least the rest of Europe.

For a while after it regained independence in 1990 and joined the European Union, Hungary did great. The economy was growing, and, although the country took on a lot of debt to rebuild, the government exercised fiscal restraint to pay it off. When the economic crisis of 2008 hit, though, the debt burden became too high, and the citizens objected to higher taxes and government spending cuts when they were facing high levels of unemployment. By mid-2010, Hungary had become part of the European Union crisis, as one of the many countries that had taken on too much debt and had trouble paying it off. Investors need to watch to see what happens.

MSCI Barra categorizes Poland as an emerging market, but in reality, Poland is a developed economy. In 1990, Poland left the Soviet bloc and pursued a dramatic and successful transition to a market economy, helped by investments from Polish-Americans.The country may graduate to the developed markets benchmark as soon as it converts to the euro, a switch scheduled for 2014, but which may change because of fallout from the 2010 European crisis.

Turkey became independent from the remains of the Ottoman Empire in 1923. It didn’t embrace democracy until 1950, and it’s now the largest democracy in the Middle East. It’s also one of the most stable countries in the region.

Although Turkey is geographically in the Middle East, it’s categorized with Europe because it borders Greece and Bulgaria, which are European countries, and because, as a democracy with a diverse economy, Turkey shares more sensibilities with the European Union than it does with the oil-producing monarchies and war-torn nations that it also borders. The country has the potential to become both a political and economic power because of its interesting geographic location, its young and educated population, and its natural gas and petroleum resources on top of its mixed economy. The news from Turkey is likely to be good.